DeFi and Building Africa’s Future Financial System: A Look at Canza Finance, a pan-African Web 3.0 financial portal
Decentralized Finance (DeFi) has been gaining significant attention in recent years, especially in emerging economies, offering a new way to access financial services without relying on traditional financial institutions or centralised networks of payments. In Africa, DeFi has the potential to solve some of the longstanding financial challenges faced by the masses, including high inflation rates, currency devaluation, and limited access to capital, among others.
In this episode of the BuildUp Africa podcast, we explore the potential of DeFi in Africa’s financial system with Oyedeji Oluwoye and Pascal Ntsama IV, co-founders at Canza Finance, a Web 3.0 financial portal bridging the FX gap in the local African markets through DeFi.
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Inflation Surges in Africa Amid Economic Challenges
In 2022, the United States experienced its highest inflation rate since 1982, with a staggering 7.5% rise. Meanwhile, in Africa, the median inflation rate has reached nearly 9% as of August 2022, with Sudan recording a striking 245%, and Nigeria and Ghana with 16.1% and 16.3%, respectively. The root causes of these high inflation rates vary between countries but are generally attributed to factors such as currency devaluation, political instability, economic mismanagement, and the lingering impact of the Covid-19 pandemic. As trust in traditional financial institutions and currencies erodes, people in Africa are seeking alternative solutions, such as stablecoins and unique cross-border payment systems, which are being developed and provided by the DeFi industry.
How Stablecoin and DeFi Addresses Inflation
Stablecoins, a type of cryptoasset, are designed to maintain a stable value that tracks a specific fiat currency, such as the US dollar or Euro.They are usually pegged to the U.S. dollar and are classified as tokens rather than blockchain-native coins. Stablecoins can be centralized or decentralized, depending on how they are collateralized.
They provide low-risk access to various opportunities in the Web3 economy and are particularly useful in developing countries where the population is generally more risk-averse to speculative investments. Notably, stablecoins have become a crucial tool in advancing basic financial inclusion in many countries across Africa. This makes them a valuable tool for people looking to protect their wealth and avoid the effects of inflation. The most commonly used stablecoins are Tether (USDT), (USDC) and (BUSD).
Top 10 Stablecoins By Market Capitalisation
Stablecoins are increasingly being used in Africa for remittances and savings due to their low-risk nature compared to more volatile cryptocurrencies like Bitcoin or Ether. Moreover, stablecoins offer a secure, fast, and cost-effective option. With fees as low as $1 for transactions up to $100,000, stablecoins provide a convenient alternative. Local currencies in Africa are losing their value due to inflation, making them unreliable for savings. As a result, many Africans are turning to savings in dollars to preserve the value of their money. Unfortunately, purchasing US dollars or other foreign currencies can be difficult due to unfavourable economic policies. This is why some individuals are opting for stablecoins as a substitute for traditional savings accounts.
Speaking on why Canza is using Stablecoin to bridge CeFi and DeFi, Oluwole stated that “In the early days of crypto adoption in Nigeria, we noticed that USDT had great traction especially when we analysed the volume of transactions for small businesses adopting USDT. We understand how we can implement the different stablecoin-based solutions on Cardano Network and we are focusing on the innovation powered by stablecoins and the interoperability across multiple platforms to create ease”.
Canza Finance Bridging the CeFi and DeFi
Canza is a Web3 company utilising blockchain tools to build the world’s largest non-institutional-based financial system. With the aim to distribute financial data and transaction-based services to the masses, Canza is ensuring that financial services are universally accessible for small and medium-sized enterprises (SMEs) across emerging markets. Hence, the platform has a range of products and services to achieve this goal, including Jollof.fi, a DeFi protocol that focuses on developing DeFi products for emerging markets, JaraNetwork, an on-chain financial services provider, Canza IPFS, a Web3.0 storage infrastructure, Canza Crypto Teller Machine (CTM) with Africa-focused installation powering on/offramp transactions, and Canza Dapps.
Regulatory Challenges for Web3 Adoption
The economic instability in African countries is the reason Africans keep transitioning to cryptocurrency, thereby increasing the adoption rate. At the end of 2022, the top 5 leading countries in terms of crypto adoption in Africa are South Africa, Zimbabwe, Nigeria, Kenya, and Ghana, while South Africa, Nigeria and Kenya are among the top 10 user countries of bitcoin in the world. One of the major challenges faced is the lack of regulatory clarity. In many African countries, there are no clear and comprehensive regulations governing the use of DeFi and cryptocurrency. This creates uncertainty for businesses and investors who are unsure about the legal framework under which they operate.
Speaking on regulation Ntsama stated “In the Web3 space we get very comfortable thinking we can create our own world but at the end of the day that world is going to exist here in the real world and in the real world there’s a financial regulator that is going to sit between your solution and customers to make sure that there’s protection, security and Integrity”
The Promising Future of DeFi in Africa
The potential for DeFi in Africa is vast and promising despite facing adoption challenges such as regulatory concerns and lack of user awareness. While DeFi may not be necessary for countries with established banking systems, it can provide a vital financial infrastructure for Africans who lack access to traditional financial services. This is what Canza Finance and many other DeFi solutions are tackling to usher in infrastructure for the emerging African digital economy, including Diasporans.
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